RE: Natural gas: The fracking fallacy

Sat, 27 Dec 2014 21:17:39 -0800 

 

 

From: [email protected] 
[mailto:[email protected]] On Behalf Of John Clark
Sent: Saturday, December 27, 2014 4:05 PM
To: [email protected]
Subject: Re: Natural gas: The fracking fallacy

 

On Sat, Dec 27, 2014  'Chris de Morsella' via Everything List 
<[email protected]> wrote:

 

> A lot of the bets made in the US shale boom are not going to pay off for the 
> investors holding on to the debt; holding those one or two year duration 
> futures hedge contracts priced at $90 a barrel. After all these investors get 
> burned – or IMO more likely the US taxpayers get stuck with the bill bailing 
> out the too big to fail banks that have bet heavily in this sector and are 
> the major holders of these seriously underwater futures contracts

 

But if you're right and oil production falls then the price of oil will go up; 
if oil is selling at $200 a barrel and I have a futures contract saying that I 
can buy oil at $90 then far from being underwater my contract is worth $110. 
But if oil is selling at $80 and I have a contract saying I can buy it at $90 
then it's underwater and worth nothing.

 

Sure the holders of those contracts would make a killing, but given the 
momentum behind the current price swing and the one or two year (max) term on 
those future contracts I don’t see much chance of that scenario actually 
manifesting. Oil production will fall in the medium term as the result of a 
wave of bankruptcies. In the short term, perversely low oil prices are driving 
some in debt drillers to sell everything they can – even at a loss, because 
they need revenue. There is a lot of selling into the panic going on because 
for the small to medium sized credit dependent operators they need revenue.

 

I should add that historically the higher the price of oil gets the more money 
the oil companies make. The way oil companies would get burned is if you're 
wrong and oil production continues to rise and thus the price of oil continues 
to fall.   

 

Oil companies make money on the spread between what they can produce it for and 
what the market is willing to pay; the higher the spread the higher the profit. 
Low cost producers make more money for each barrel of oil they sell at any 
given price than higher priced producers.

These chaotic price swings – and we have been here before on wild rides both up 
and down with oil – are hugely damaging to the smooth operation of what are 
projects with an exceedingly long development upstream timeline from discovery 
to producing field. These price swings, choke up the capital market and cause 
massive disruptions later on in the supply side of the business. Sure 
eventually supply rises as capital rushes in to the sector, but the harm from 
these disruptions is immense in my opinion. 

 

> Oil is there, but getting it out is going to become increasingly hard to do.

 

Yes but in general as technology improves we figure out how to do things that 
are harder and harder to do. Until just a few years ago getting light oil out 
of porous shale was so hard to do it just couldn't be done, but that is no 
longer true.

 

Yes, that is true to an extent. Another example, tertiary recovery techniques 
have given some life back to old depleted fields. But this can only work if 
there is an actual resource there to retrieve. But weighing against such 
improvements on the margin made possible through improved technology are a host 
of other factors including: 1) increasing marginal costs for critical supplies 
as the easiest, closest, most accessible sources are used up. An example of 
this is the rising marginal cost for poppants (certain grades of sand). 2) 
Increasing marginality of recovered resource. Tight oil is… well tight; it is 
hard dirty, difficult work, squeezing it out from that rock and doing so is 
only going to get harder as the quality of the next marginal field to be 
developed grows poorer over time (the better tracts being developed first)

 

 

> Tight oil will play a significant role in supplying liquid hydrocarbons to 
> the global market, but it is not the answer to all our energy woes.

 

It's not the long term solution but it could create trillions of dollars of 
wealth for the human race in the next decade or two, and that seems like 
something worth doing to me.The long term answer to our energy woes is liquid 
fueled Thorium nuclear reactors, and maybe fusion.   

 

When a boom goes bust, it is a while before the good times return. If investors 
get scorched in the tight oil patch, as it seems they might; it will not be all 
that easy to lure them back in. The trillions you speak of is the burn rate of 
this sector. And not just the tight oil sector, but the deep water drilling 
sector as well. Both have huge capital requirements. They are voracious money 
pits. Horizontal drilling and fracking is a big operation that sucks down a lot 
of up front capital before a single drop of revenue is generated. Each single 
wellhead is a big dollar sunk investment; it is a big dollar bet that that well 
will produce more than some given amount of oil over a given period of time, 
and depleting at a given rate. When these are not met then that sunk capital 
has become a money hole. 

What has been under weighted in the manic period of this boom is the depletion 
rate of fracked wells. As the implications of the much higher rates of 
depletion typical for hydraulically fractured tight oil fields sets in, my hope 
is that a more realistic better informed capital market will develop and that 
capital will be allocated in a smarter manner than drill baby drill…. Its boom 
times.  But I am not holding my breath either, for bankers are greedy and now 
that they know they can offload risk on to the general public what’s the 
downside? (for them)

 

 

 

 

>> Concerning kerogen oil shale, I haven't found any credible source that says 
>> it would take more energy to get oil out of kerogen shale than you could get 
>> out of it which would mean it would never be economical no matter how high 
>> the price of oil went.

 

> I have seen the EROI figure of 2.5:1  -- e.g. it takes 2.5 times as much 
> energy in as can be obtained from the produced product. 

 

I don't believe that for one second. 

 

Ok.. you have stated your lack of belief; does not alter the facts however. 
Look at the history of attempts at kerogen extraction. How did all of these 
attempts end? Including the big DOE attempt kicked off after the oil embargo in 
1973 (and they spent a lot of money trying to make it work) and the also very 
big attempt by Exxon/Mobile abandoned in 1982 after sinking $5 billion. Most 
recently Shell Oil called it quits after many years of trying to make it work.

Perhaps the existence of this string of failures and no corresponding list of 
success stories should tell you that maybe, just maybe those 2.5:1 EROI numbers 
I gave are on the mark. 

 

 

Well OK maybe if you include self energy, the heat given off by the kerogen 
itself as it undergoes chemical change, but if you're talking about external 
energy that you need to pit in and if it was true (and it would be very easy to 
prove if it were) that you'd always get less energy out than you put in then 
oil executives would have had to have been brain damaged to have ever spent one 
dime on it. 

 

I am referring to the EROI of the process itself without any absurd tertiary 
boundary conditions either. The process of applying external heat in order to 
raise its temperature up to the 350 degrees C processing temperature consumes 
two and a half times as much as the energy contained in the produced liquids.

Oil executives are not brain damaged – for one thing I don’t see any oil majors 
investing a dime in kerogen extraction; secondly the investments that were made 
could be justified, in spite of the negative energy returns because the liquid 
product is a high value energy product. If the energy inputs were lower grade, 
burning coal for example, they were hoping to be able to make a profit, because 
of the high premium for oil. 

 

 

It may be uneconomical to obtain oil from kerogen with oil selling for less 
than $60, but I don't think it's a law of physics that it must always be 
uneconomical.  

 

As long as the containing mass of shale rock has to be heated to a processing 
temperature of 350 degrees C for one hour it is and will forever remain an 
energy sinkhole. It is not a matter of market cost. If the market cost for oil 
rises to say $200 per barrel AND the cost of other energy inputs conversely 
remains low AND the premium for liquid fuel as an energy store continues to 
prevail in the global transportation sectors – that is a lot of ifs – then some 
of this resource may some-day be developed (at an energy loss, because of the 
liquid fuel premium)

 

I do not see this. I see the price performance curve of solar PV continuing to 
look better and better each year and I see battery storage density improving by 
around 6 or 7 percent per year and per unit costs come down as well. I see the 
electrification of transportation occurring – where I live in the Seattle area 
plugin hybrids and all electric cars are becoming fairly common and plain 
vanilla hybrids are ubiquitous. We can disagree – and I am fairly certain you 
will disagree. In ten years’ time I am pretty confident that the margins are 
going to favor solar PV + wind with much larger battery capacity driven by the 
grow out of the all-electric automotive sector. They all laughed at Tesla cars, 
well they are not laughing so much anymore. The new Roadster will have a 400 
mile range, all the way from S.F. to L.A. on a single charge.

 

By the way I am not opposed to LFTR and am probably better versed on it than 
many folks on this list. One aspect of it that attracts me is that the 
fuel/fertile mix is embedded in a molten salt that is continuously cycled 
through the reactor and can be continuously re-processed to remove non-nuclear 
contaminants, unwanted neutron absorbers (such as xenon-135) – need the 
neutrons to breed the fertile Thorium-232 into Paladium-233 (which decays into 
Uranium-233 – e.g. the fuel). The liquid nature of this heavy molten fluoride 
salt mix as well as the convenient fact that all the re-processing can be 
accomplished via chemical means (which is orders of magnitude easier and 
cheaper than gas centrifuge diffusion) enables this continuous re-processing 
approach.

Furthermore it is highly desirable to re-process the fuel/fertile salt mix 
before much of the Pa-233 gets transmuted through neutron bombardment into 
Pa-234, which instead decays into U-232 that produces a decay product 
thallium-208 an intense gamma ray emitter and deadly isotope. Doing so prevents 
lowering the yield of the needed U-233 fuel (through transmutation of the 
Pa-233 into Pa-234) as well as absorbing neutrons (thus removing them from 
being able to transmute Thorium-232) and of course it leads to the LFTR molten 
salt mixture becoming contaminated with the U-232 that – through its own decay 
generates intense gamma ray emitting by products.

In other words the incentives to continuously re-process the molten fuel mix 
are considerable and they are compelling. The best LFTR system would keep the 
molten salt mixture as clean as possible and on site continuous chemical 
re-processing is the way to accomplish this.

And this leads straight to my principal concern. U-233 is a good bomb making 
material and the US has in fact exploded a U-233 bomb. LFTR reactors that have 
continuous fuel re-processing (which is highly desirable for making them into 
efficient breeders) and the reactor molten salt mix was removed from the active 
reactor before a significant portion of the transmuted thorium-232 (e.g. the 
Pa-233) absorbed another neutron transmuting into Pa-234 is an excellent means 
for producing highly pure U-233 that is NOT contaminated with U-232 and thus is 
not especially hard to handle. 

 

 

> There is one specific scenario where this makes some sense. I described it in 
> detail in my response to spudboy. Basically if the installed base of wind and 
> solar – a lot of which is sited in the same general areas as these shale 
> deposits – continues to exponentially grow, then at some point this installed 
> base will produce a massive surge capacity that will create huge surpluses of 
> electric energy 

 

A solar powered Dyson sphere would be interesting but If in the future wind and 
terrestrial solar are the best energy sources available then human civilization 
is doomed. 

 

I believe you can generalize that statement by saying our civilization is 
ultimately doomed if we do not manage to become a solar scale civilization with 
significant off planet presence. As long as we remain bound to the bottom of an 
ocean of air on one single rock orbiting one single star we are all of us eggs 
in one single basket.

Space based solar could scale out… what is the word… astronomically. In fact 
the scale of structures in a micro-gravity environment is not limited by 
gravity and on earth by the sheer forces of wind and also earth tremors. 
Station keeping is an on-going expense, but that can be minimized if the 
platform is in a halo orbit around a La Grange point. Materials for 
manufacturing the PV grade polysilicon could come from the moon or from near 
earth asteroids at very small deltas of velocity. 

But alas it seems our society has largely turned its back on space, in a 
wrong-headed short-sighted preparation for what promises to be a very bloody 
game of last man standing… the existential fight to the death, over diminishing 
strategic resources.

When all the universe – the great out there -- beckoned us to become a space 
fairing species; we turned our backs.

-Chris

 

  John K Clark

 

   

 

 

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